Tuesday Options Recap

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 |  Includes: CLSN, DGWIY, EXK, GG, MSFT, NDAQ, TXN
by: Frederic Ruffy

Sentiment

Stock market averages are holding modest gains on another quiet day of trading Tuesday. Chip stocks are seeing relative strength after Texas Instruments (NASDAQ:TXN) announced plans to buy LSI Logic (NASDAQ:LSI) in an all cash deal. However, stock market averages traded lower early on a disappointing reading from the ISM Services Index, which fell to 57.3 in March. Economists were looking for the index to hold steady around 59.7. Stock market averages then battled back to positive territory through midday and into the release of minutes from the latest FOMC meeting. The text indicated that some Fed officials are becoming more concerned about inflation and raised the specter of higher interest rates. However, it didn’t specify how many or which members are leaning towards a change in policy. Stock market averages held steady through the news, but are drifting lower in the final hour. Both the Dow Jones Industrial Average and the NASDAQ are now flat. The CBOE Volatility Index (.VIX) is off .45 to 17.05. Trading in the options market is active, but distorted due to a large number of stocks going ex-dividend. 12.5 million calls and 5.5 million puts traded so far.

Bullish Flow

Goldcorp (NYSE:GG) notches a new 52-week high today and is trading up $1.80 to $51 per share. 28,000 call options have traded on the gold miner, which compares to about 7,000 puts. Most of the action has been smaller sizes. The top trade is a 476-lot of May 35 puts at 4 cents each on ISE. 3,950 traded. The next biggest is 459 May 49 calls at the $3.05 ask price. April 52.5 calls, where volume is approaching 18K, are the most actives. April 49 and 50 calls are busy as well. Gold is up $16.6 to $1449.6 an ounce, but the heightened options action might be a play on Goldcorp's Investor Day, scheduled for tomorrow.

Endeavour Silver Corp (NYSE:EXK) notches a new 52-week high and is trading up 77 cents to $10.95 after silver gained another 65 cents to $39.14. Options action is heating up in the Vancouver-based silver miner as well. The top trade is a 600-lot of May 12.5 calls at the 55-cent asking price. 1,680 traded. April 10, April 12.5, May 10 and Aug 10 calls are seeing interest as well. EXK shares have been ripping higher lately, up 91.4 percent since January 24. Some investors might be closing out positions in the $10 strike while opening new ones in 12.5 calls after the recent rally.

Bearish Flow

Microsoft (NASDAQ:MSFT) adds 29 cents to $25.84 after the NASDAQ OMX Group (NASDAQ:NDAQ) announced a re-balancing of the NASDAQ 100, which will benefit MSFT, ORCL and INTC, but not AAPL. MSFT is up on the news and the top options trade in the software giant so far is a Jan 25 – 30 bearish risk-reversal bought at $1.37, 13000X (bought the Jan 25 puts at $2 and sold the Jan 30 calls at 63 cents). It might be a closing trade because there is substantial open interest in both contracts. Or, it might be a straight bearish bet on Microsoft. More than 15,000 now traded.

Implied volatility Mover

Duoyuan Global Water (DGW) is under pressure for a second day. Shares fell 27.3 percent yesterday after Muddy Waters Research warned that the company might have cooked the books and the stock is probably worth $1 per share. A flurry of put activity surfaced during yesterday’s sell off (see 4/4 color). Today, shares are down another $1.02 to $2.97 on news the company’s CEO Stephen Park has resigned. Options remain actively traded as well. 7,300 puts and 1,305 calls so far. Looks like some investors are bracing for further fallout in the April and May 2.5 puts, which have traded 1,738 and 1,500 contracts, respectively. Implied volatility is up another 9 percent to 232.